Payroll in Cyprus

The World Bank classifies Cyprus as a high-income economy, making it a hotspot for investors to start a business there. It is also one of the most advanced economies in the world. The country’s nominal GDP stands at $26.705 billion, and the GDP is growing at 5.4% annually. Agriculture, industry, and services are the three dominant sectors in Cyprus, out of which the service sector contributes to 85.5% of the GDP. 

Earlier, Cyprus was ranked 57th in the Ease of Doing Business Index but moved to 54th in 2020 due to a relaxation in foreign investment and the country’s focus on infrastructure. Hence, setting up a business in Cyprus has gotten easier. The country has an employment rate of 75.9%, constituting people aged 20 to 64. Several industries like tourism, food and beverage, textiles, and wood flourish in Cyprus, allowing different businesses to set up subsidiaries in Cyprus. 

You must set up an effective payroll system when establishing a new Cyprus company. A payroll system in Cyprus should be compliant and address all the payroll needs of the company and the employees. Read on to understand everything about the payroll policies and procedures in Cyprus before establishing your company’s processes. 

How is Payroll Calculated in Cyprus?

Most companies have a payroll system to calculate all the payroll components. Larger organizations can afford to hire a dedicated team to process the payroll manually. Therefore, how the company calculates payroll will depend upon the needs and the allocated budget. 

Payroll in Cyprus includes elements like gross pay, net pay, allowances, and several other elements that are a part of the compensation structure. The payroll in Cyprus also includes all kinds of deductions like taxes, premiums, and social security contributions. 

All companies in Cyprus have established a standard process that helps them calculate the payroll for all employees. They also ensure that the payroll procedures and policies in Cyprus are adhered to while making the payroll calculations. 

Important Elements of Salary Structure in Cyprus

Several elements are a part of the salary structure in Cyprus. Let’s have a look at these elements. 

Cost to Company (CTC)

The cost to the company, also called the CTC, showcases the aggregate amount the company bears to onboard an employee. It includes all the elements of the compensation structure and is stated in the employment letter. 

Gross salary

Gross pay constitutes all the crucial elements of the payroll calculation. It denotes the maximum earning potential of the employee and shows the amount an employee will earn annually.

Net salary

The net salary denotes the employees’ take-home pay that is credited directly to the employee’s bank account. It is calculated by making all the necessary deductions from the employee’s gross pay. 

Basic salary

The basic salary (base pay) is a base for calculating all the other components of the compensation structure. It accounts for about 40-50% of the total compensation structure. Depending on their designation and industry standards, the company decides on an employee’s base pay. 

Allowances

Cyprus offers different kinds of allowances to their employees. These allowances support the employees financially and help them bear the expenses related to work, like commuting, communicating, etc. Some standard allowances offered in Cyprus are: 

• Food allowances
• Petrol allowances
• Mobile Allowance

Bonus

Several companies in Cyprus offer their employees a 13th-month payment or an annual bonus. The company must state the terms and conditions of a bonus payment in the employment contract. 

How to Set Up a Payroll in Cyprus?

If you want to set up payroll in Cyprus, you must take a step-by-step approach as discussed below:

• Step 1: Decide the type of company you want to set up and incorporate a company in Cyprus. 
• Step 2: Collect all the essential documents like the Articles of Association and submit them to the Government authorities. Once the company is incorporated, you must collect essential documents like the Certificate of Incorporation. 
• Step 3: You must also register your business with the local and national authorities that handle taxes and social security. Consult with the authorities and determine when these payments will be made.
• Step 4: Open a bank account in one of the local banks to make all the payroll-related payments. A local bank account is mandatory before setting up your payroll in Cyprus. 
• Step 5: Now, check the time sheets of all the employees to ascertain their overtime payments. Once you know the overtime payments needed, you can calculate the employees’ gross pay. 
• Step 6: Post the calculation of the gross pay, you need to calculate the other elements of the salary structure, like the net pay, allowances, etc. 
• Step 7: Now, select a payroll system that meets the needs of all employees. After choosing the system, you must also decide on the preferred payroll procedure in Cyprus so that everything is carried on systematically. 
• Step 8: Choose a payroll cycle to complete all payroll computations and payments on time. To avoid legal concerns, ensure you adhere to payroll rules and regulations in Cyprus.

A Step-by-step Process of Payroll Processing in Cyprus

The payroll procedure in Cyprus comprises the following steps:

Select a payroll system

Different kinds of payroll systems exist in Cyprus. Before picking the payroll system, you must factor in your budget and the company’s requirements. Some of the standard payroll systems in Cyprus are: 

• Manual payroll: In the case of large companies, a manual payroll system is a widely accepted choice. Here, they hire a dedicated team that handles the company’s payroll. Manual payroll is more expensive than other payroll systems. 
• Payroll outsourcing: You can also outsource your payroll to a different company. The company will handle all the payroll calculations, disbursement of payments, etc. 
• Payroll software: Payroll software automates the entire payroll system. This option is recommended for companies who want to automate the entire process and dedicate less workforce. 

Curate a payroll policy

• A payroll policy is mandatory for all companies in Cyprus. The guide acts as a go-to document for all the payroll policies in Cyprus. 
• Consider Cyprus’s labor laws and collective bargaining agreements when creating a payroll policy. 

Onboard the employees to the payroll system

• After deciding on a payroll system, notify and onboard each employee.
• You must update the payroll system with their information, such as name, birthdate, phone number, and compensation components, among other things.
• The payroll system should specify the payroll cycle to make timely employee payments.

Check the timesheets

• You must check the employees’ timesheets to calculate the compensation components such as gross pay, overtime payments, etc. 
• Once you calculate the employees’ gross pay, you must also withdraw applicable deductions. 

Perform reconciliation

• Reconciling the payroll is crucial to avoid mistakes and make real-time adjustments. 
• Before paying salaries to employees, you must verify all of their information.

Disburse the payslips

• As soon as the payroll computations are completed, you must provide each employee with a pay slip based on their pay scale.
• The pay slips can be distributed using payroll software or email.

Payroll Contributions

The payroll contributions are decided based on the payroll rules and regulations in Cyprus. It is mandatory to adhere to all these regulations to avoid legal repercussions. Some important payroll contributions in Cyprus include the following:

Minimum wages

• Cyprus did not have a minimum wage until 2022. However, a minimum wage will be applicable for all employees from 2023. 
• The minimum wage in Cyprus stands at €940 per month. The minimum wage is at least €885 for the first six months of employment before increasing to €940.

Overtime

• The standard working hours in Cyprus are 48 hours a week. If the employees work beyond 48 hours in a week, they will be entitled to overtime pay. 
• Collective bargaining agreements decide overtime payments, and they differ across industries. Hence, the overtime payment clauses must be stated in the employment contract. 

Employer contribution

Employers in Cyprus make several contributions on behalf of their employees to support them. These contributions are made directly to the governing bodies that handle these funds. Look at some expected employer contributions in Cyprus: 

The maximum social insurance contribution is € 58,080. Employers contribute a total of 22.90% to employee welfare.

Employee contribution

Employees also contribute to different funds that can help them during health emergencies and retirement. Let’s look at some contributions deducted from the employee’s gross pay. 

The employees contribute 10.95% of their gross pay towards payroll contributions. 

Taxes

Every employee in Cyprus is required to pay taxes on the money they make there. These taxes are paid to the tax authorities straight from the employee’s salary. The employees must, however, submit annual tax returns.

Cyprus follows a progressive taxation system where the tax rate increases with income level. The current tax rates in Cyprus are as follows:

Bonus

Although it is not required, paying employees a 13th salary in December is common. The terms and conditions should be stated in the employment contract. 

Payroll Cycle

Employees receive their pay slips on the final day of every month as part of the payroll cycle, which runs from the beginning to the end of the month. 

Cyprus Payroll Options for Companies

Payroll choices are numerous for businesses operating in Cyprus. Before selecting a payroll option for your business, you must compare these possibilities. Additionally, you need to set a budget for the payroll system and list all the criteria the system must satisfy. Cyprus offers the following payroll options:

• Internal payroll: Large companies with a dedicated team to look after the payroll system. The company handles the payroll in its entirety on its own.
• Remote payroll: Subsidiary companies can onboard all employees to the parent company’s payroll system. However, the payroll processing is done per the payroll policies in Cyprus. 
• Payroll processing companies: Several payroll processing companies can aid you with the payroll process. However, you must take care of all compliance-related matters. 
• Global PEO: You can pass the payroll handling responsibility to a global PEO like Multiplier. The experts at Multiplier will help you set up a compliant payroll system. 

Entitlement and Termination Terms

The employment contract should specify the employee’s rights and include termination clauses to prevent any issues. Employees’ rights include pay, working conditions, vacation time, and other perks. The employer must justify an employee’s termination. Employers should have a compelling and legal justification before laying off workers:

• The employer and the employee agree
• The employee engaged in dishonest behavior while working there.
• If there is a significant change in the company

The termination letter that the employer provides to the employee must state the reason for termination. Severance compensation is something that firms must give to terminated workers.

Cyprus Payroll Processing Company

While expanding your business in a nation like Cyprus is straightforward, you must know all local laws and customs. You can get in touch with subject matter experts who can explain the procedure to you.

For more information on the local laws and rules governing Cyprus’ payroll systems, contact a EOR company like Multiplier. If you want the best payroll aid support, keep your options open.

How Multiplier Can Help with Global Payroll

When setting up a payroll in Cyprus, it is vital to adhere to local labor laws and regulations. However, you can swiftly set up a compliant payroll system with the right direction and professional assistance.

Contact a multinational EOR like Multiplier to learn more about your payroll needs. Numerous businesses worldwide have used Multiplier to create a productive and efficient payroll system. Our team will assist you in setting up a reliable payroll system that satisfies the requirements of both the business and the employees.